Orient-Express Hotels Reports Third Quarter 2008 Results
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Orient-Express Hotels Reports Third Quarter 2008 Results
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-11-04
Third Quarter 2008 Highlights
- Third quarter total revenues, excluding real estate, grew 5%
- Same store RevPAR up 9% in US dollars, 1% in local currency
- EBITDA before real estate of $50.0 million; adjusted EBITDA before real
estate of $51.3 million
- Third quarter net earnings from continuing operations of $17.6 million
- EPS from continuing operations of $0.41 per common share; adjusted EPS
of $0.47 per common share
- The company has taken a number of steps to reduce costs and preserve
financial flexibility
Orient-Express Hotels Ltd. (NYSE: OEH, http://www.orient-express.com), owners or part-owners and managers of 51 luxury hotels, restaurants, tourist trains and river cruise properties operating in 25 countries, today announced its results for the third quarter and first nine months of 2008.
For the third quarter, the Company reported net earnings of $6.4 million ($0.15 per common share) on revenue of $184.2 million, compared with net earnings of $22.6 million ($0.53 per common share) on revenue of $185.7 million in the third quarter of 2007. The net earnings from continuing operations for the period were $17.6 million ($0.41 per common share), compared with net earnings of $22.3 million ($0.53 per common share) in the third quarter of 2007. The adjusted net earnings from continuing operations for the period were $19.9 million ($0.47 per common share), compared with adjusted net earnings of $24.8 million ($0.58 per common share) in the third quarter of 2007.
"Although unprecedented global market conditions have exerted pressure on high-end luxury consumer spending, our loyal client base has traditionally shown resilience throughout economic cycles," said Paul White, President and Chief Executive Officer. "While we did experience expected margin compression during the quarter, we delivered revenue growth in most of our geographic areas. In Europe, La Residencia, Mallorca, Reid's Palace, Madeira and The Grand Hotel Europe, St Petersburg, Russia all grew revenues by over 10%. In North America, performance was affected by the threatened arrival of Hurricane Gustav. Revenues in the region were down by $1.2 million. We are particularly pleased with the results achieved in the Rest of the World, which recorded same store RevPAR growth of 25%, driven by South Africa, South America and Asia."
Mr. White continued, "We remain confident in the long-term prospects of the sector, particularly in light of favorable demographics. However, we believe it is important during this period of deteriorating market conditions to take a more cautious approach to our business. This means greater focus on reduction of costs, deferring capital expenditure and maintaining financial flexibility, while at the same time maintaining activities to maximize our revenues."
The Company has initiated several key operational and investment decisions, including adjusting the development timeline of several strategic real estate projects, as well as other operational changes in order to improve cost efficiencies and conserve cash during this challenging period in the lodging industry. These key changes include:
- Plans for the building of the New York Hotel on the site of
the Donnell branch of the New York Public Library, as well as an
associated $46 million commitment, will be delayed.
- The opening of El Encanto will be pushed back to at least the
middle of 2010, which will defer $30 million of capital expenditures
for a 12 month period and enable the Company to open this milestone
property in more favorable market conditions.
- Completion of Porto Cupecoy is being rescheduled both to
defer further expenditure and to allow time for the real estate market
to improve.
- New building projects in Miami, Cartagena, Zambia and Puglia,
Italy have been cancelled and other projects have been deferred pending
an improvement in market conditions.
- The Company will suspend its quarterly dividend payments
beginning in 2009, resulting in $4 million annual cash saving.
- The Company plans to reduce business unit capital expenditure
from a forecast of $69 million in 2008 to $24 million in 2009 while
safeguarding FF&E replacements to ensure service quality.
- The Company has undertaken a rigorous review of variable
overheads and is taking steps to reduce these costs by $20-$22 million
annually.
Mr. White continued, "As a result of these combined initiatives, we expect our short to medium term cash needs will be reduced by approximately $200 million, enhancing our liquidity and overall capital position when the business cycle begins to improve. It will also enable us to take advantage of investment opportunities which we have previously seen emerge in economic downturns."
Business Highlights
Revenue, excluding real estate revenue, was up 5% over the third quarter of 2007 reflecting Owned Hotels same store RevPAR growth of 9% in U.S. dollars (1% in local currency) and a 5% increase in revenues from Trains and Cruises, including the Venice Simplon-Orient-Express, which had another strong quarter with revenue growth of 21%.
Revenue from Owned Hotels for the third quarter was $141.8 million, up 7% over the same period in 2007. Revenue growth of 6% in Europe and 13% in South America (excluding Hotel das Cataratas) was offset by a 7% decline in North America. Restaurants revenues were down by 3% year-over-year.
EBITDA before Real Estate was $50.0 million compared to $53.1 million in the prior year. The principal variances from last year included the result from Windsor Court, New Orleans (down $1.5 million), the result from Hotel Cipriani, Venice (down $2.5 million) and Hotel das Cataratas, Brazil which recorded an EBITDA loss of $1.3 million because the hotel is under refurbishment. Orient-Express Hotels acquired this property in October 2007, so there is no comparative figure in the prior year.
Regional Performance
Europe: For the third quarter, revenues from Owned Hotels were up 6% year-over-year from $86.7 million to $91.6 million. EBITDA was $36.5 million in 2008 versus $38.3 million in the prior year. Same store RevPAR increased by 7% in US dollars, from $551 to $589 but decreased by 3% in local currency. The Italian hotels reported a combined EBITDA of $20.2 million, which was 10% down year-over-year reflecting a RevPAR decline of 9% in local currency. Poor market conditions in Venice and new competition in Florence affected Hotel Cipriani and Villa San Michele, respectively. Grand Hotel Europe, St Petersburg grew revenues by 18% year-over-year, but high local inflationary cost pressures restricted its EBITDA growth to 12%. Reid's Palace, Madeira also contributed to EBITDA growth despite challenging market conditions.
North America: Revenue of $16.7 million was 7% lower than the third quarter of 2007. There was an EBITDA loss of $1.5 million compared to a profit of $0.9 million in the prior year. Same store RevPAR for the region fell by 9%. The result for the quarter included a $1.8 million EBITDA loss by Windsor Court, New Orleans, partly caused by the threatened arrival of Hurricane Gustav.
Southern Africa: Revenue of $10.0 million was 15% higher year-over-year, and EBITDA of $2.6 million was 14% higher. This improvement was mostly driven by Orient-Express Safaris, which has continued to benefit from strong demand.
South America: Revenue increased to $12.5 million from $9.4 million in the third quarter of 2007. The quarter includes revenues of $1.7 million in 2008 from Hotel das Cataratas, which was acquired in October 2007. EBITDA was $1.9 million, level with last year. Copacabana Palace revenues were up 16% year-over-year and EBITDA was up $1.1 million. This gain was offset by an EBITDA loss of $1.3 million at Hotel das Cataratas, which is under refurbishment.
Asia Pacific: Revenue for the third quarter was $10.9 million, an increase of 8% year-over-year. EBITDA was $2.2 million compared to $2.3 million last year. Same store RevPAR for the region increased by 23% from $130 to $160 (19% in local currency). All of the Asian hotels performed well except for The Governor's Residence in Burma, which has started its recovery from recent events in that country.
Hotel management and part-ownership interests: EBITDA for the third quarter was $4.7 million compared with $5.8 million last year. Charleston Place, South Carolina, felt the impact of reduced group bookings and Hotel Ritz, Madrid, was impacted by the sharp deterioration in the economic climate in Spain.
Restaurants: Revenue from restaurants in the third quarter was $3.3 million compared with $3.4 million last year and EBITDA was a loss of $0.4 million compared with a loss of $0.2 million last year. The third quarter is traditionally the lowest earnings quarter of this segment due to the annual closure of the '21' Club in the month of August.
Trains and Cruises: Revenue was $31.0 million, an increase of 5% year-over-year, and EBITDA was $10.2 million, an increase of 7%. As in the previous quarter, there were strong performances from the Venice Simplon-Orient-Express (EBITDA up $1.1 million) and from PeruRail (Company's share of earnings up $0.4 million).
Central costs: In the third quarter, central costs were $6.2 million compared with $7.7 million in the third quarter of 2007. The third quarter of 2007 included $2.0 million of management restructuring and related costs.
Real Estate: In the third quarter, there was an EBITDA loss of $0.2 million. Porto Cupecoy sales and costs continue to be recorded on the percentage-of-completion basis. There were no sales during the quarter and five purchases were cancelled.
Interest: The interest charge for the quarter was $11.6 million compared with $11.5 million in the second quarter of 2008 and $12.6 million in the third quarter of 2007. The quarter included a charge of $0.4 million relating to the change in the fair value of an interest rate swap. In the second quarter of 2008 a credit of $0.6 million was booked in relation to this swap.
Tax: The tax charge for the quarter was $8.3 million compared to $12.2 million in the same quarter in the prior year. The tax charge for the nine months was $17.0 million compared to $20.8 million in the prior year. The Company's effective tax rate for the nine months, including earnings from consolidated and unconsolidated operations but excluding discontinued operations, was 31.6% compared with 34.2% for the same period in 2007. This reflects a change in the earnings mix from 2007 to 2008 and falling income tax rates in Italy and the United Kingdom, effective January 2008.
Discontinued Operations: The charge in the third quarter was $11.2 million. This included a further impairment charge of $12.0 million based on current negotiations for the sale of Bora Bora Lagoon Resort.
Investment: Total capital expenditure in the third quarter was $29.1 million, which included various projects at, in particular, El Encanto, Grand Hotel Europe, Copacabana Palace and Hotel das Cataratas. A total of $15.3 million was invested during the quarter in the Company's developments at Porto Cupecoy and the Villas at La Samanna.
Balance Sheet: At September 30, 2008, the Company's total debt was $790.6 million, working capital facilities drawn were $48.9 million and cash balances amounted to $69.4 million, giving a total net debt of $770.1 million compared with total net debt of $826.4 million at the end of the second quarter of 2008.
At September 30, 2008, debt was approximately 42% fixed and 58% floating. The weighted average maturity of the debt was 3.8 years and the weighted average interest rate (including margin) was 5.45%. The Company had cash and funds available under working capital and revolving credit facilities totalling $147 million.
Outlook
Due to the deteriorating global economic situation and the lack of visibility in the lodging industry, forecasting is difficult. In 2008 the Company's businesses around the world have performed well in the high seasons but demand has been weaker in shoulder season months. The recent weakening of the Euro against the U.S. Dollar should help to stimulate demand across the portfolio in 2009. Emerging destinations, such as South East Asia, Peru and Brazil in South America and Southern Africa continue to show healthy growth. As in previous downturns, Orient-Express Hotels will diligently manage costs and conserve cash, in order to be well positioned to react to recovery in all markets, both in terms of operational performance and investment opportunities.
Management evaluates the operating performance of the company's segments on the basis of segment net earnings before interest, foreign currency, tax (including tax on unconsolidated companies), depreciation and amortization (EBITDA), and believes that EBITDA is a useful measure of operating performance, for example to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial performance measure commonly used in the hotel and leisure industry, although the company's EBITDA may not be comparable in all instances to that disclosed by other companies. EBITDA does not represent net cash provided by operating, investing and financing activities under U.S. generally accepted accounting principles (U.S. GAAP), is not necessarily indicative of cash available to fund all cash flow needs, and should not be considered as an alternative to earnings from operations or net earnings under U.S. GAAP for purposes of evaluating operating performance.
Adjusted net earnings, adjusted net earnings from continuing operations, and adjusted E.P.S. are non-GAAP financial measures and do not have any standardized meanings prescribed by U.S. GAAP. They are, therefore, unlikely to be comparable to similar measures presented by other companies, which may be calculated differently, and should not be considered as an alternative to net earnings, cash flow from operating activities or any other measure of performance prescribed by U.S. GAAP. Management considers adjusted net earnings, adjusted net earnings from continuing operations, and adjusted E.P.S. to be meaningful indicators of operations and uses them as measures to assess operating performance because, when comparing current period performance with prior periods and with budgets, management does so after having adjusted for non-recurring items, foreign exchange (a non-cash item) and significant disposals of assets or investments, which could otherwise have a material effect on the comparability of the company's core operations. Adjusted net earnings, adjusted net earnings from continuing operations, and adjusted E.P.S. are also used by investors, analysts and lenders as measures of financial performance because, as adjusted in the foregoing manner, the measures provide a consistent basis on which the performance of the company can be assessed.
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